Question

Bank Three currently has $300 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 8 percent of transaction deposits.

a.

If the Federal Reserve decreases the reserve requirement to 6 percent, show the balance sheet of Bank Three and the Federal Reserve System just before and after the full effect of the reserve requirement change. Assume Bank Three withdraws all excess reserves and gives out loans, and that borrowers eventually return all of these funds to Bank Three in the form of transaction deposits. (Do not round intermediate calculations. Enter your answers in millions rounded to the nearest dollar amount.)

Panel A: Initial Balance Sheets Bank Three Assets Liabilities   (Click to select)Transaction depositsSecuritiesReserve accountsLoansReserve deposits at Fed $ million   (Click to select)Reserve accountsTransaction depositsSecuritiesReserve deposits at FedLoans $ million   (Click to select)LoansSecuritiesReserve accountsTransaction depositsReserve deposits at Fed million b. Redo part (a) using a 12 percent reserve requirement. (Do not round intermediate calculations. Enter your answers in millions rounded to the nearest dollar amount.) Panel A: Initial Balance Sheets Bank Three Assets Liabilities   (Click to select)SecuritiesReserve deposits at FedReserve accountsLoansTransaction deposits $ million   (Click to select)LoansReserve deposits at FedTransaction depositsSecuritiesReserve accounts $ million   (Click to select)Reserve accountsReserve deposits at FedSecuritiesLoansTransaction deposits million

Answer 1